Product market competition, corporate governance and firm performance: an empirical analysis for Germany

Productivity growth has been slow in many continental European countries over the last few decades, especially in comparison with the United States. It has been argued that lack of product market competition and poor corporate governance are two of the main reasons for this phenomenon. However, predictions from theoretical models are far from unambiguous, and empirical evidence is sparse, in particular at the level of individual firms. In this paper, we aim to close this gap with an econometric analysis of firm performance in Germany. Based on a unique panel data set with detailed information on almost 400 manufacturing firms over the 1986-94 period, we find that firms operating in industries which are characterized by more intensive product market competition experience higher rates of productivity growth. We also find weak evidence for the notion that in Germany?s bank-based system of internal control, ownership concentration is harmful for productivity growth. --competition,corporate governance,productivity

Product market competition, corporate governance and firm performance: An empirical analysis for Germany

Productivity growth has been slow in many continental European countries over the last few decades, especially in comparison with the United States. It has been argued that lack of product market competition and poor corporate governance are two of the main reasons for this phenomenon. However, predictions from theoretical models are far from unambiguous, and empirical evidence is sparse, in particular at the level of individual firms. In this paper, we aim to close this gap with an econometric analysis of firm performance in Germany. Based on a unique panel data set with detailed information on almost 400 manufacturing firms over the 1986-94 period, we find that firms operating in industries which are characterized by more intensive product market competition experience higher rates of productivity growth. We also find weak evidence for the notion that in Germany’s bank-based system of internal control, ownership concentration is harmful for productivity growth

Essays on the industrial organization of the airline industry

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2003.Includes bibliographical references.This thesis analyzes several aspects of the Industrial Organization of the airline industry in three separate chapters. Chapter 1 investigates the effect of air traffic delays on airline prices. The degree to which prices respond to changes in service quality should depend on consumers' willingness-to-pay for quality, as well as the availability of substitute products. I study the effect of an exogenous variation in on-time arrivals, as one dimension of service quality in the airline industry, on prices for airline travel. The effect is identified from a legislative change in takeoff and landing restrictions at La Guardia Airport in New York City in the year 2000. I find that prices drop in reaction to longer flight delays. The price response is larger when a close substitute flight is available. Increased flight delays at La Guardia have a positive effect on prices at other New York City Metropolitan Area airports, which offer substitute products. In quantile regressions on thedistribution of prices, I show that prices at the upper end of the distribution react more strongly to flight delays. In Chapter 2, I study how airline passenger complaints are related to actual and expected service quality of air carriers. In contrast to the existing studies on customer complaints, I do not derive consumers' expectations from survey data. Instead, I use the best prediction at the time of purchase given the information available at that time as the consumer's rational expectation of service quality. I find that passengers file more complaints when an airline's actual service quality is lower and when expected quality is lower. These effects are quite robust across different econometric specifications. Considering the magnitudes of the effects, I find that the effects of actual quality and of expectations on complaints are of similar magnitude. Chapter 3 tries to understand the recent market entry and expansion by a group of small carriers, often labeled low-cost carriers. As a first step in analyzing the competitive strategy of these carriers, we investigate the effect of a carrier's and its competitors' existing presence at the endpoints of a routes on the likelihood of entry.by Silke I. Januszewski.Ph.D

Control Rights, Network Structure and Vertical Integration: Evidence from Regional Airlines

This paper investigates the relationship between vertical integration and the importance of control rights under incomplete contracts. Our setting is the U.S regional airline industry. Regional airlines operate flights for major carriers under the major’s brand. The majors market the regionals’ flights as their own. There is substantial heterogeneity in whether or not regionals are owned by the major for which they operate. Furthermore, several majors own some of their regional partners while also contracting with others. We develop a simple framework that illustrates the benefits and costs of vertical integration between a major and regional. We argue that when unforeseen disruptions create the need for schedule adjustments – as frequently occurs in the airline industry - the major will internalize the impact of the disruption on its entire network, while the regional will not. Ownership of a regional mitigates this incentive problem by giving the major rights of control over how the regional’s physical assets and labor force are used. However, by bringing the regional’s labor force “in-house”, ownership of a regional may erode some of the labor cost savings that are very reason why majors subcontract certain flights to regionals. Using data on majors’ use of regionals in the second quarter of 2000, we test whether majors’ choice of organizational form reflects this tradeoff between greater control and lower labor costs. Our results provide support for our analytical framework. We find that owned regionals are more likely to serve city pairs that are (1) more integrated into the major’s network, where externalities not internalized by the regional will be the greatest; and (2) that owned regionals are more likely to serve city pairs with adverse weather conditions, where unforeseen schedule disruptions will be more common